ASSET COST REPORTING and MARSHALL & SWIFT CONSTRUCTION INDEX DATA
RE: Cost Reporting For Changes To Previously Acquired Assets For CAV Reimbursement
Objective - Determine the original acquisition cost of assets removed from facility operation or being replaced by new asset acquisition.
Program Policy - LTC Policy Manual, Chapter VII, Allowable Costs states the Provider must report as part of the annual cost report, the cost of newly purchased assets and changes to previously acquired assets in the year in which the purchases or changes take place. To ensure the Program does not continue to pay for assets that are no longer being used to provide patient care, the original acquisition costs, or an estimate thereof, will be removed from the determination of the current capital asset cost data base. The costs of retirement or replacement of buildings, building improvements, building additions, fixed building equipment, land improvements, or movable equipment will be removed from the capital asset cost data base for the year of the original acquisition.
Replaced or renovated fixed building assets for which a component asset cost cannot be determined from the Provider's asset cost schedules, construction records, or tax records, require the Provider to determine and report the original asset cost based on the cost of a similar type asset. If the Provider is not able to report the original asset cost on this basis, the new asset item will be assumed as a similar type of the original asset for determining the capital asset cost data base amount.
Either the removed asset item historic acquisition cost or a derived, backdated value will be removed from the capital asset cost data base.
The requirement for asset cost removal will not be applied to facilities in which the total historical asset cost base of the facility was determined through the CAV Re-determination policy. If the facility's CAV Re-determination was a single aggregate dollar amount, no adjustment will be made to this dollar amount unless the facility is razed or replaced with new construction. New asset acquisitions made after the CAV Re-determination will be subject to the established asset replacement policy; requiring asset cost back out from the first replacement amount.
Example:a) CAV re-determination in 1991
b) Roof A/C unit replaced in 1993; no asset cost removed from 1991
c) Roof A/C unit replaced in 1997; asset cost of 1993 unit removed from 1993
Cost Reporting - Asset cost additions and changes are reported on cost report schedules Worksheet 3, Nursing Home and Worksheet 3, Lessor. Costs of new asset purchases are reported in the current year.
Original cost value available: When the original value can be ascertained through the facility records, the Provider must report the original component costs and year for removal from the capital asset cost base.
Original cost value is not available: A derived value must be determined to remove the retired or replaced asset from the capital asset cost data base. The derived value will be calculated by backdating the replacement cost of the asset. This is done by dividing the replacement cost by the Marshall & Swift Valuation Service Construction Index inflation factor for the year the replaced asset was originally acquired. The Marshall & Swift Valuation Service index data is published in October of the calendar year. Providers should used the most recent available index to determine the derived values for cost reporting, therefore the 1999 and 2000 cost reporting years will continue to use the October, 1999 index table until a new one is available. These index applications will be accepted and used for cost reporting and asset cost base data changes. The index table is available from the Data Analysis Reimbursement and Settlement Division, BuFRR.
Sample Calculation - The Provider replaces the original windows in the facility in 1999. The original windows were included in the building construction cost and the value cannot be determined from the Provider records. The building was constructed in 1978. The 1978 Marshall Swift Index is 2.027525; the replacement cost of similar windows based on 1999 prices is $35,000. The derived value of windows cost to be reported for removal from the 1978 building cost base is $17,262 ($35,000 divided by 2.027525).
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